This article, the second in a series, explores the tension that exists between advisors remaining close to clients, and achieving scale and the economic efficiencies they engender.

This commentary is from Jamie McLaughlin. He is chief executive of J H McLaughlin & Co, a founder of the UHNW Institute in the US, and a member of FWR's editorial board. He has commented on stories in these pages. See here.

An article from McLaughlin, entitled A Cautionary Tale: Challenges Of Serving UHNW, Centimillionaire Client Segments, appeared on May 12. This article below follows it. Like the previous article, it also appeared in a publication (see here) by The Investments & Wealth Institute. 

The editors of FWR are pleased to share these insights. The usual editorial disclaimers apply. To comment, email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com

There are many “theaters of operation” for firms to consider when serving UHNW and centimillionaire families. And each of them is interdependent. I will posit summaries of a few that will underscore the increased degree of difficulty firms face when serving these segments.

Scale 
As firms grow, there is an inherent tension between scaling and maintaining client intimacy. As Andrew Schwedel of Bain & Co. articulated at The UHNW Institute’s recent Collegium (1), “growth introduces complexity, which can dilute focus and erode the benefits of both scale and the founder’s mentality. Sustainability requires maintaining clear mission alignment and strategic clarity.”

Capital and sustainability
Most firms that serve the UHNW client segments are RIAs and independent trust companies formed as partnerships with no capital other than their free cash flow. Claiming “independence” as a firm’s identity and brand can be a hollow promise if they cannot reinvest in their people, resources, and business processes. But a surfeit of capital sponsors is now investing in the business in many variations – some minority and strategic investors are providing capital for founders’ succession and for firms to exploit the compelling market opportunity to serve UHNW and centimillionaire clients. Others are financial buyers who may dilute a firm’s ability to maintain the culture that made them attractive and may lead to a dilution of client intimacy. 

Despite the array of capital options and the decade-long cascade of deal-making, a few winning firms will emerge that will have a “virtuous” capital structure that serves their owners, clients, and employees equally well. Those firms will be sustainable business models.

Profitability
For wealth management firms broadly, profitability centers on people – their efficiency and configuration. There are fixed costs for non client-facing staff and business management and variable costs for revenue bearing advisors and support staff.

The driver is the cost of staff (typically, 65 to 80 per cent of a wealth management firm’s expense structure) which for UHNW and centimillionaire clients is at the higher end of that range where there tends to be lower capacity utilization per headcount. Further, the UHNW firm’s headcount has a higher unit price. In summary, it requires more expensive people to “carry the dialogue” who have lower realization rates because the needs of UHNW and centimillionaire clients are often idiosyncratic and customized. So, the profitability per client is inherently lower. 

Creating economies of scale or operating leverage requires much more discipline in both the execution of the service agreement and related pricing model.

The staff model and talent 
The conversation has changed. Few professionals can “carry the dialogue” across the variegated demands of UHNW and centimillionaire clients – they either do not have the integrated competencies or do not have the innate attributes to counsel, listen and provide clients a safe place to reveal themselves and express their needs. Whether expressed by the client or unexpressed and discerned or feathered out over time by advisors, there will remain unknowns.

Such client complexity implies an ensemble delivery where the lead advisor or team acts as the equivalent of a general contractor, assembling solutions internally and externally to achieve the desired client outcomes. “Ownership” of the client relationship requires both integrated solutions
and collaboration among and between professionals. The ensemble model is not only better for clients, but also for firms’ economics where they can more effectively manage their client-facing staff’s load management and capacity utilization.

McKinsey recently identified a looming talent shortage (2). The challenge is industry wide, but particularly acute for the advisors needed to serve UHNW and centimillionaire clients. At its root, the pathway to becoming a counselor to families of great wealth and complexity is misaligned. There is no early talent identification process – firms react to what the market presents them often cannibalizing their neighbor’s talent or accepting whatever the market produces. This is changing with some incipient academic programs, industry credentialling, and a few leading firm’s internal training initiatives but there is no leading UHNW learning platform that prepares an aspiring advisor for the training needed to serve the complexity of great wealth. 

In this void, The UHNW Institute’s seminal “Ten Domains” template offers a compelling rubric. 

The service model
There are four primary service verticals: 

-- integration as a service – this is as much an orientation as it is a service itself, but it is highly dependent on the service model and available talent to deliver; 
-- investment management – this includes investment strategy, investment vehicles, and the operational issues needed to support and administer the investment process; 
-- advanced planning – a host of different disciplines and services, where the advisor, team, or firm must coordinate multiple providers, some internal and some external; and 
-- information management, or data assimilation – the data and metadata that can be used for various advisor and client needs such as investment reporting, budgeting, cost accounting, financial planning, and accounting. 

These are not, per se, unlike the service needs of the mass affluent and HNW client segments, but they are categorically different when the degree of client complexity is introduced. 

Notable areas that are often dependent on external partners or where internal staff are under-resourced include: family counseling, business transition consulting, family household administration, and private investments. The staff complement for the latter, private investments, is often grossly under-resourced and extremely expensive to build. Alternative platforms (i.e., iCapital, CAIS, etc.) are not the bespoke solution that clients demand. While they offer operational efficiencies, they are largely distribution platforms.

Organic growth/client acquisition 
Organic growth has been tepid in a remarkable 15-year capital markets cycle. While demographic data indicates a pronounced growth in UHNW households, it is unclear that even the leading UHNW firms are capturing these mandates. Despite the costs to do-it-yourself, many subscale family offices are being created. 

This can be partly attributed to poor client acquisition strategies and execution, but it is largely due to firms’ inability to demonstrate their value. 

Pricing 
Firms’ dependence on the traditional and convenient asset-based pricing model signals that their non-investment services are apparently “free” and, therefore, of negligible value. Firms must get off the asset-based pricing “treadmill” and resocialize clients to the “building blocks” of where their value is rendered (4).   

Technology 
The cloud computing revolution’s effect on the wealth management industry at large cannot be overstated. Ten years ago, most firms licensed SaaS applications on a point-solution basis. Today, integrated systems delivered via the cloud are available delivering multi-functional solutions for both the advisor/client relationship and for the business with enhanced workflow management. But firms’ legacy systems remain a millstone and a multi-functional, omni-platform for UHNW and family offices does not yet exist. 

A potential future state is the separation of advice and counseling from operations entirely as omnibus platforms emerge, not unlike the business processing outsourcing (BPO) trend of the 1990s (5). 

Footnotes
1,  Collegium VII: “Defining and Achieving Business Sustainability,” The UHNW Institute, Chicago, October 2024.
2,  For more context, see Wealth 3.0, Grubman, Keffler, Jaffe, 2023
3,  â€śThe Looming Advisor Shortage in US Wealth Management,” McKinsey & Co., February 2025
4,  For an extensive review of UHNW pricing, see “Fees and Pricing for Ultra-High-Net-Worth Client Services,” McLaughlin and Ferguson, Schwab Advisor Family Office, December 2024